First time investor about to do a 1031 exchange with 2.2 million...Help!

Member since 2020 · 2 posts · 1 vote

Greetings, I'm Nick. I inherited an auto repair business and property in Long Island City, NY. However, I'm not interested in running or maintaining the business. I'm currently in the process of selling the property and anticipate completion within the next six months. Although the property is valued between 2.6-2.9 million, I'm planning for 2.2 million. I'm seeking advice on investing this sum promptly, as I have limited experience in real estate. I'm open to collaborating with interested parties who can provide guidance or work with me on this venture.

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Nikola Kiridzic, You're right. A 1031 will be needed. It will be your father who does the 1031 since he is the taxpayer for the property right now. I would recommend that you and he agree on a structure that allows you to manage and benefit from the 1031 replacement properties in a way that he can remain on title for the remainder of his life.

The reason for this is that if he passes away while owning the property you will inherit at a "step up" in basis - you will inherit as if you paid market price for the properties the day he died. So all of the tax built up over the years is actually wiped out when you inherit. This is the inheritance benefit that was referenced earlier. It could still be beneficial to you.

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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
3y
Hi Nikola,
You mention that you inherited the property. Have you discussed the 1031 Exchange with your tax advisor? You may not need to do a 1031 Exchange if you received a step-up in cost basis. So, first thing is to determine if you need to do one.
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Nikola Kiridzic
OP
Member since 2020 · 2 posts · 1 vote
3y
Quote from @Bill Exeter:

Hi Nikola,
You mention that you inherited the property. Have you discussed the 1031 Exchange with your tax advisor? You may not need to do a 1031 Exchange if you received a step-up in cost basis. So, first thing is to determine if you need to do one.

Apologies, Bill. I didn't provide enough context earlier. The property is not legally transferred to my name as my father is still alive, so a 1031 exchange would be necessary.

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Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
3y
@Nikola Kiridzic - it sounds to me like DSTs(Delaware Statutory Trusts) would be a good fit for you. You can split investment proceeds into multiple properties(if you choose,) and it's totally hands-off. And the cash flow goes to you(the investor.) Check it out.

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
3y
@Nikola Kiridzic, You're right. A 1031 will be needed. It will be your father who does the 1031 since he is the taxpayer for the property right now. I would recommend that you and he agree on a structure that allows you to manage and benefit from the 1031 replacement properties in a way that he can remain on title for the remainder of his life.
The reason for this is that if he passes away while owning the property you will inherit at a "step up" in basis - you will inherit as if you paid market price for the properties the day he died. So all of the tax built up over the years is actually wiped out when you inherit. This is the inheritance benefit that was referenced earlier. It could still be beneficial to you.
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Account Closed
Manhattan Beach, CA · Member since 2021 · 76 posts · 40 votes
3y
Quote from @Michael Gansberg:

@Nikola Kiridzic - it sounds to me like DSTs(Delaware Statutory Trusts) would be a good fit for you. You can split investment proceeds into multiple properties(if you choose,) and it's totally hands-off. And the cash flow goes to you(the investor.) Check it out.

@Nikola Kiridzic Michael is right. DSTs are passive investments that qualify for the exchange. You don't have to manage the property and the transaction process is much simpler than buying an actual property. I sent you a message Nick! Would be happy to get on a call with you to go over this option.
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Joe SeraBusiness Member
MD · Member since 2021 · 31 posts · 16 votes
3y
@Nikola Kiridzic I would agree with @Michael Gansberg.
It sounds like your father fits the DST investor profile.
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Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
3y
@Nikola Kiridzic You could do a 1031 exchange into a TIC investment into a cash flowing market like KC or a similar option is to invest out of state in KC with a good property manager and team here that can ensure you get the deal done. If you want cash flow the midwest is a great market for it. If you have a 5 year exit plan, you can likely get annual returns of 18%+ if you buy correctly and exit correctly.
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John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 804 votes
3y
@Nikola Kiridzic make sure you DO NOT take title as Dave Foster mentioned so you can get a step up in basis.

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